Bottom Torture

There are several who are claiming that a 1929-style or 1987-style crash is now imminent. OK. Fine. We see that as a possibility, but we wonder, how many of those claiming so actually would have counted the lead up to the crash in one of those markets properly.

As an example, below, we are showing you how we would count the 1986 - 1987 market to it's top. Ask yourself, seriously, if you would have even come close to this count at the time, knowing what we have tried to show you about counting Elliott Waves over the years.

S&P500 Cash Index - 1986 & 1987 - Detailed Count

Your count should start over on the lower left, with an expanding leading diagonal in five waves for Minor wave 1, and a 50% retrace for Minor wave 2. The 50% retrace is deep enough to allow Minor wave 3 to be an extended wave, and it is - at very, very close to the 1.618 Fibonacci extension level.

At that point, and this is critical, there is an abrupt down wave - which is interesting - but it is way too short in time to have corrected all of Minor Wave 3. It is part of the correction, but not all of it. I know people find it offensive, but what follows is a massive (b) wave of a running triangle - way more than 1.618 x (a), down. People try to count all of  this up movement as still part of 3, but that is not correct. It is more choppy, more curvy, and not as impulsive as the "straight up" movement in 3. And, the zigzags down to wave (e) would not alternate well with the sharp Minor 2.

Further, in examining this triangle, wave (c) occurs exactly at the 78% retracement level of (b), and wave (e) misses taking out the (c) wave low by less than 1 full S&P point, and, yet, it does - as is required by a running triangle - overlap the top of the prior wave 3. This is why I have titled this post, Bottom Torture. It may be similar to a situation we are in today. Look at how that triangle hammers at the bottom.

Then, after the (e) wave of the triangle, there is a clear five-wave movement up to the Top, which also occurs just barely past the usual technical target of the triangle - which is the widest width of the triangle added to the breakout point.

Notice within Minor 5, up, the fourth wave iv, is a "running flat" wave, showing the excessive power of the upward pull of the market.

So, here are some questions for you to think on. If you were counting waves in 1986 - 1987, would you have counted a nearly four-month triangle correctly? Or would you have been screaming for a crash at each of those lows?

And would you have counted the leading diagonal correctly? It is the "wind-up-before-the-pitch" that gives the market its power to rise nearly vertically in the next wave. Would you have arrived at a proper target for the post-triangle wave? And how about that "running flat" fourth wave, iv, within Minor 5. Would you have thought the move was over at it's b wave, and started counting with a i, down at that point? Yet, a running flat is in the right place at the right time, and serves to take up more corrective time in the count.

My point is this. Markets can play with us. They will do what they need to in order to fake us out and get us headed in the wrong directions at the wrong time.

Can today's market make a lower low on Monday or later next week? Absolutely. The only point of the above chart is to ask you to be careful about thinking the Elliott Wave count is what you think it is (and also to show that a triangle did proceed the 1987 top - whether that happens again or not). The above chart follows all of the Elliott Wave rules and most of the guidelines I am aware of. But the overall count is not visually apparent without work, study, and a prerequisite knowledge of the patterns and the rules.

When you have those in your grasp, I think you can see, then, how each of the descriptions of the above waves fits the wave personality for those points in time. You will also note in each case how the wave patterns try to keep waves 2 and 4 somewhat with similar or less net points traveled. Does that always have to happen? No. It just often has in the past.

Can a deep wave 4 occur in our current market? Yes. But, again, if we are ending a Primary 5th wave, then why is there no triangle or diagonal as of yet? Curious Elliott analysts want to know.

Have a great Saturday.
TraderJoe